Despite concerns about high interest rates and a weakening economy, consumers displayed remarkable resilience in September, propelling retail sales well above expectations.
According to the Commerce Department’s advance report released on Tuesday, retail sales increased by 0.7% during the month, significantly surpassing the Dow Jones estimate of 0.3%. Excluding automotive sales, the growth was 0.6%, well ahead of the predicted 0.2%.
These figures, which are not adjusted for inflation, indicate that consumers managed to keep up with rising prices. In contrast, the consumer price index from the previous week indicated a 0.4% increase in headline inflation for September.
On a year-over-year basis, retail sales grew by 3.8%, slightly outpacing the 3.7% increase in the consumer price index.
The report had an impact on financial markets, leading to an increase in Treasury yields and additional losses in stock market futures.
The strong sales performance in September was broad-based, with miscellaneous store retailers leading the way with a 3% increase. Online sales rose by 1.1%, while motor vehicle parts and dealers saw a 1% increase, and food services and drinking places showed a substantial 0.9% growth, leading all categories with a yearly increase of 9.2%.
However, a few categories saw declines, with electronics and appliances stores, as well as clothing retailers, experiencing a 0.8% decrease during the month.
This retail report holds significance for the Federal Reserve as they deliberate over the future of monetary policy. While the market largely expects the Fed to have completed its rate hikes for this cycle, the unexpectedly robust performance of consumers introduces complexity to the equation.
Federal Reserve Chair Jerome Powell’s remarks in New York on Thursday will be closely monitored for any hints about the direction of interest rates. The Federal Open Market Committee (FOMC) is scheduled to convene on October 31-November 1, and market expectations indicate a strong likelihood that the FOMC will refrain from raising rates. However, future rate hikes may be considered if economic data continues to show strength.
Despite the positive sales data, consumers are expected to face challenges in the coming months, including slowing employment growth, rising credit card balances, and the resumption of student loan payments, all of which could impact spending. Nevertheless, third-quarter economic growth is anticipated to be robust, with the Atlanta Fed’s GDP tracker suggesting a potential annualized gain of 5.1%.
(Source: CNBC | WSJ | MarketWatch)
